'Frozen' princess promises hot Christmas for struggling toymaker

Reuters News
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Posted: Sep 23, 2014 11:57 AM

By Siddharth Cavale

(Reuters) - Snow Glow Elsa has a big job ahead of her - even for a princess with magical powers.

The doll, one of only four toys to feature on three major guides of top toys for the holiday season, has the task of reviving Jakks Pacific Inc, which has reported losses for the last two years and declining revenue since 2009.

Jakks is licensed to make toys and dresses based on Walt Disney Co's blockbuster animation movie "Frozen", including the Elsa doll.

Wal-Mart Stores Inc, Toys R Us Inc [TOYS.UL] and industry magazine Toy Insider have all picked the just-launched toy for their closely watched annual gifting guides.

More than for Mattel Inc or Hasbro Inc - the top two U.S. toymakers - "a toy that will be on a list like Wal-Mart will be of greater benefit for (Jakks) because of their smaller size," said Edward Woo, senior research analyst at investment bank Ascendiant Capital Markets LLC.

The "Frozen" line could top $125 million in sales this year for Jakks, Woo said, with Snow Glow Elsa alone contributing $50 million. That's nearly 8 percent of Jakks' 2013 revenue of $632.9 million. Mattel had sales of $6.48 billion last year.

Malibu, California-based Jakks, anticipating a bumper Christmas, has added more than five factories in China to ramp up production and iron out supply hurdles in its "Frozen" line of toys, Chief Executive Stephen Berman told Reuters.

The company doesn't break out sales by product.

Needham & Co's Sean McGowan, the top-rated analyst tracking Jakks according to Thomson Reuters StarMine, estimated sales of close to $100 million from the "Frozen" line this year. Sales so far total about $20 million, he said.

Six of eight analysts covering Jakks, including McGowan, have a "buy" rating on the stock, with the median price target at $10. The shares, which have risen about 2 percent this year, were trading around $6.80 on Tuesday.

TURNAROUND YEAR

Elsa, the misunderstood princess with a magical ability to create ice and snow, has emerged as a hot favorite character among girls since "Frozen" released in November.

Jakks' Snow Glow version is a baby-faced doll with a dress that lights up and she sings the Oscar winning song "Let it Go" from the movie.

The doll, aimed at girls aged 3 and above, is priced at $39.97 at Wal-Mart and at $34.99 at Toys R Us.

Wal-Mart's top-20 list - based on a survey of about 1,000 children - pits the doll against some old favorites such as Mattel's never-say-die Barbie and gadgets such as LeapFrog Enterprises Inc's LeapTV, an educational gaming system with motion sensors. [ID:nBw2HyyzRa]

The Toys R Us list, which relies on research from in-house experts, features both Snow Glow Elsa and LeapTV, but no Barbie.

It has another Jakks toy on its list: Max Tow, a monster truck toy powerful enough to pull and push objects weighing up to 200 pounds. [ID:nPn2sb71L]

Other than Snow Glow Elsa and LeapTV, the only toys that also feature on Toy Insider's gifting guide are Just Play's mobile clinic playset, based on the Doc McStuffins animated TV series, and Spin Master Ltd's Zoomer Dino, a gesture controlled T-rex on wheels. [ID:nPn1PyzYR]

Jakks' toys have made it to previous lists, but demand for those hadn't built up like it has for the "Frozen" toys, said Jonathan Samet, publisher of the Toy Insider magazine.

"This (year) is going to be a big turnaround for Jakks," Samet said.

STOCKING UP, BUT FAST ENOUGH?

The movie is already having an impact on Jakks, which began a restructuring last year.

About a year after the toymaker suspended its dividend and announced job cuts, Jakks reported a 16.9 percent increase in revenue for the three months ended June 30, its biggest quarterly sales growth in at least five years.

It also forecast a profit for the year.

But the company's shares fell 14 percent amid concerns that the company may not be able to meet holiday demand.

Since then, Berman said, the company has worked with its suppliers to ensure adequate supply.

Some analysts aren't convinced.

"("Frozen" is) a phenomenon, and as prepared as retailers are for the "Frozen" rush I think they will still be understocked," said Laurie Schacht, president of Adventure Publishing, which issues the Toy Insider list.

Berman is thinking long-term, noting that merchandise spawned by the 1995 hit animation movie "Toy Story" were still big sellers.

"Frozen" is our generation's "Toy Story", he said.

(Reporting by Siddharth Cavale in Bangalore; Editing by Feroze Jamal and Ted Kerr)